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Why the Rich Respect the Penny Print E-mail
(5 votes, average 4.80 out of 5)
Personal Finance - Investing
Written by Ahmed Amr   
Wednesday, 16 June 2010 04:00
You’ll see them almost everywhere you go. No matter how far from the beaten path, you’ll find them dickering over a dollar at the Thieves Market in Mexico City or negotiating over a few pennypesos with a street vendor in Ensenada or Marrakesh. It’s all in good fun - at least that’s what they’ll tell you. Or is it? What motivates rich tourists to drive hard bargains over some cheap trinket or original piece of art? The simple answer: they can’t help themselves. It’s an acquired habit that permeates their daily lives and it’s a matter of personal pride.

Rich people are invariably more intelligent than average, and even if they aren't, they think they must be due to their status in life. So they don’t like being taken for fools. The idea of having to pay a premium price for an Aztec calendar or an Oriental carpet goes against the grain.

In business, negotiating bargains paves the path to riches. If you can make a better mouse trap, the world will make a path to your door - as long as you can produce it cheap enough and make a profit distributing it. That requires negotiating the best price from your suppliers. Making a profit often comes down to the price of components which might require haggling over a few pennies on everything from screws to shipping costs. A few pennies here and there can ruin a business model. Think of all those 99 cent stores. How do all those manufacturers design, produce and deliver a decent quality knife or hair brush for under a buck and still leave enough room for the retailer to mark it up by twenty or thirty percent? My cousin just told me that the Chinese outfit that sells half the world's socks makes about half a penny a pair. Tell them that a penny isn't important.

F Scott Fitzgerald was dead wrong. The rich aren't any different than you and me.They're subliminally conditioned to chase that magic penny and so are you. Anybody who’s taken Marketing 101 knows that a product sells better at $19.99 than at twenty bucks. In fact, the only reason we probably continue to mint pennies is for sales taxes and to allow retailers to shave a penny off the last dollar.

And then there is personal pride and bragging rights. That’s right - they’ll be boasting about that trophy African mask they purchased for five bucks for years to come. And with the passage of time, the price will shrink in the telling and retelling. 

At its core, haggling is a skill and the practitioners of the dickering art are disciplined and  consistent. On average, the rich have better money habits and, by definition, habits remain habits when you’re consistent and disciplined. So ignore the myth that the rich squander money. That's pulp fiction and the culprit is usually a celebrity or an athlete who made a lot of money real fast. Most fortunes are accumulated slowly and carefully by the kind of people who watch what they spend.

They wealthy respect money no matter the denomination. A lot of successful people are motivated by money and they’re aware of what they have in their pockets at any given time. If you look in their wallets, they’ll have their bills arranged by denomination. People who are careless with their pennies end up being careless with their dollars. The wealthy know that pennies turn in to dollars and dollars into thousands of dollars.

So the next time you walk down the street and see a penny, pick it up because every penny is a lucky penny. 

 

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haverwench  - Dollar stores |2010-06-16 10:59:50
"Think of all those 99 cent stores. How do all those manufacturers design, produce and deliver a decent quality knife or hair brush for under a buck and still leave enough room for the retailer to mark it up by twenty or thirty percent?"

Um, what? Stuff sold at dollar stores isn't manufactured specifically for sale at those stores, is it? I thought most of it was overstock that other stores were unloading at a loss. (See http://www.walletpop.com/blog/2009/08/10/the-truth-about-dollar-stores /.)
 
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